Module 2 Entrepreneurship Development

1. Discovery
• An entrepreneurial process begins with the idea generation, wherein
the entrepreneur identifies and evaluates the business opportunities.
The identification and the evaluation of opportunities is a difficult
task; an entrepreneur seeks inputs from all the persons including
employees, consumers, channel partners, technical people, etc. to
reach to an optimum business opportunity. Once the opportunity has
been decided upon, the next step is to evaluate it.

• An entrepreneur can evaluate the efficiency of an opportunity by
continuously asking certain questions to himself, such as, whether the
opportunity is worth investing in, is it sufficiently attractive, are the
proposed solutions feasible, is there any competitive advantage, what
are the risk associated with it. Above all, an entrepreneur must
analyze his personal skills and hobbies, whether these coincides with
the entrepreneurial goals or not.

2. Developing a Business Plan
• Once the opportunity is identified, an entrepreneur needs to create a
comprehensive business plan. A business plan is critical to the success
of any new venture since it acts as a benchmark and the evaluation
criteria to see if the organization is moving towards its set goals. An
entrepreneur must dedicate his sufficient time towards its creation,
the major components of a business plan are mission and vision
statement, goals and objectives, capital requirement, a description of
products and services, etc.

• Whether you’re planning to open a shop that makes the best
coffee around or you want to sell eco-friendly office supplies, you’ll
need to explain why your business is necessary and how it’ll differ
from its competitors. That’s where your business plan comes in. It
provides investors, lenders and potential partners with an
understanding of your company’s structure and its goals.

3. Resourcing
• The third step in the entrepreneurial process is resourcing, wherein
the entrepreneur identifies the sources from where the finance and
the human resource can be arranged. Here, the entrepreneur finds
the investors for its new venture and the personnel to carry out the
business activities.

4. Managing the company
• Once the funds are raised and the employees are hired, the next step
is to initiate the business operations to achieve the set goals. First of
all, an entrepreneur must decide the management structure or the
hierarchy that is required to solve the operational problems when
they arise.

5. Harvesting
• The final step in the entrepreneurial process is harvesting wherein, an
entrepreneur decides on the future prospects of the business, i.e. its
growth and development. Here, the actual growth is compared
against the planned growth and then the decision regarding the
stability or the expansion of business operations is undertaken
accordingly, by an entrepreneur.
• The entrepreneurial process is to be followed, again and again,
whenever any new venture is taken up by an entrepreneur, therefore,
its an ever ending process.

Deciding to Become an Entrepreneur
• The desire to become an entrepreneur may be triggered by any on
the following factors:
I. Arising of an innovative idea backed up the ability to start a business
II. Inheriting wealth and skills to establish an enterprise
III. Prevailing problems in current jobs
IV. Willing to become own boss
V. Pursuing own ideas
VI. Realizing the need of earning money.

Business opportunity identification & project
idea generation
• A new venture has to solve a problem and meet a genuine need.
• Business opportunity means a good or favorable change available to run a specific business in
given environment at a given point of time.
• The term ‘opportunity’ also covers a product or project.
• Product or opportunity identification & selection process starts with the generation of ideas.
• Sources of project ideas
• Consumers
• Existing products & services
• Distribution channels
• Government
• Research & development
• Interests and hobbies
• Personal experience and talents
• Trade fairs and exhibitions
• Brain storming

Consumers
• No business enterprise can be thought of without consumers.
Consumers demand for products and services to satisfy their wants.
Also, consumers’ wants in terms of preferences, tastes and liking keep
on changing. Hence, an entrepreneur needs to know what the
consumers actually want so that he/she can offer the product or
service accordingly. Consumers’ wants can be known through their
feedback about the products and services they have been using and
would want to use in future.

Existing Products and Services
• One way to have an enterprise idea may be to monitor the existing
products and services already available in the market and make a
competitive analysis of them to identify their shortcomings and then,
based on it, decide what and how a better product and service can be
offered to the consumers. Many enterprises are established mainly to
offer better products and services over the existing ones.
• Example: Apple
• Mac was the first computer to ship with a mouse & the first computer to introduce the
world to a graphical user interface(GUI)

Distribution Channels:
• Distribution channels called, market intermediaries, also serves as a very
effective source for new ideas for entrepreneurs. The reason is that they
ultimately deal with the ultimate consumers and, hence, better know the
consumers’ wants.
• As such, the channel members such as wholesalers and retailers can
provide ideas for new product development and modification in the
existing product.
• For example, an entrepreneur came to know from a salesman in a
departmental store that the reason his chair was not selling was its dark
shade while most of the young customers want chair with light shade. The
entrepreneur paid attention to this feedback and accordingly changed the
shade of his chair to light shade. Entrepreneur found his chair enjoying
increasing demand just within a month.

Government
• At times, the Government can also be a source of new product ideas
in various ways. For example, government from time to time issues
regulations on product production and consumption. Many a times,
these regulations become excellent sources for new ideas for
enterprise formation.
• For example, government’s regulations on ban on polythene
bags/plastic have given new idea to manufacture jute bags for
marketing convenience of the sellers and buyers.

Brainstorming
• Brainstorming means using the brain to storm the issue/problem.
Brainstorming ultimately boils down to generate a number of ideas to
be considered for the dealing with the issue/problem.
• However, brainstorming exercise to be effective needs to follow a
modus operandi involving four basic guidelines:
1. Generate as many ideas as possible.
2. Be creative, freewheeling, and imaginative.
3. Build upon piggyback, extend, or combine earlier ideas.
4. Withhold criticism of others’ ideas.

Interests and hobbies
• A hobby is an activity that you enjoy doing during your leisure-time
and is one of the primary sources of business ideas. In fact, most
people have founded great successful businesses while pursuing their
interests or hobbies.
• For instance, if you enjoy traveling, playing with computers, music,
sports, performing or cooking, you can seamlessly develop it into a
business. You can join the tourism, entertainment or hospitality
industry by venturing deeper into your favorite activity.

Personal experience and talents
• Most of the ideas and opportunities for successful businesses are a result
of the experiences in the place of work. For example, an experienced
manager working for a leading restaurant can eventually decide to start a
business related to hospitality even before he retires. As a potential
entrepreneur, therefore, you can make the most use of your skills and
experiences as crucial sources of business ideas generation. They also
determine the type of venture that you start as you capitalize on them. If
you are gifted or have experience in a specific field, then it is time to
analyze just talent or skills. You can start off with the following self-
examination questions:
• What am I passionate about?
• What talents or skills do I possess?
• Are people willing to pay me for my skills?
• What do I need to build on my skills

Trade fairs and exhibitions
• Trade fairs and exhibitions are among the top sources of developing
business ideas. They are usually advertised on the Internet, radio, and
newspapers, and by attending such events regularly, you will discover
new services and products. You will also meet with manufacturers,
sales representatives, distributors, wholesalers, and franchisers who
will answer all your questions and inspire you to start a business that
will thrive. In fact, some of them may be in need of someone like you
to partner with, and this will be an exceptional opportunity to partner
with renowned entrepreneurs and franchisers.

Evaluating the idea as a business opportunity
• Here are a few important initial questions to ask yourself as part of a
business opportunity evaluation.
• Does your business idea have a demonstrated market need?
• Is there sufficient demand for the product or service?
• Is creating the product or service economically feasible?
• Will there be a sufficient return on the investment of starting a new business?
• What is the cost of NOT pursuing this business opportunity (also known
as business opportunity cost)?

• If a business idea does have initial merit, you should also perform a
more detailed business opportunity evaluation. One such method is
the RAMP model developed by Ryan P. Allis
• RAMP stands for Return, Advantages, Market, and Potential.

1. Return
• The big question that an entrepreneur should ask is whether a business
opportunity will generate revenue, and ultimately, profit. Without a potential
profit, a great business idea is just a great idea without financial merit.
• Can you make a product that generates more money than you spend?
• How much investment will you need to get the business idea off the ground?
• And ultimately, what are your or your investors’ return requirements?

2. Advantages
• To identify the advantages of pursuing this potential business opportunity,
look at factors that this idea has that others don’t.
• What makes your business idea better than others?
• Is your idea unique, and does it have minimal competition?
• Do you have intellectual property like a patent that gives your business idea
an advantage?

3. Market
• Another pillar in your business evaluation process is analyzing the market. If
there isn’t a big enough market for your product or service, you should
rethink whether this business opportunity makes sense.
• Who will be your target consumer?
• Is there a need for your business idea?
• Can you fill a market need?

4. Potential
• The bottom line of any business is to make money. Without positive cash flow,
you won’t succeed. Business owners with the best of intentions often fail
because the financial potential isn’t big enough.
• Will there be sufficient financial reward?
• Do you see a potentially growing market for the product?
• Do you have others who believe in your business ideas?
• Are there other businesses that are similar (which is a validation that this
potential business opportunity could be worth pursuing)?

SCREENING
• Compatibility with the Promoter
• It Fits the Personality of the Entrepreneur
• It is Accessible to Him
• It offers him the Prospect of Rapid Growth and High Return
on the Invested Capital

SCREENING
• Consistency with the Government Priorities
• Is the Project Consistent with the National Goals and
Priorities?
• Are there any Environmental Effects Contrary to
Governmental Regulations?
• Can Foreign Exchange Requirements of the Project be
Easily Accommodated?
• Will there be Any Difficulty in Obtaining the License of
the Project?

SCREENING
• Availability of Inputs
• Are the Capital Requirements of the Project within
Manageable Limits?
• Can Technical Know-How Required for the Project be
Obtained?
• Are the Raw Material Required for the Project Available
Domestically at a Reasonable Cost? If the Raw Materials
Have to Be Imported, Will there be Problems?
• Is the Power Supply for the Project Reasonably
Obtainable from External Sources and Captive Power
Resources

SCREENING
• Adequacy of Market
• Total Present Domestic Market
• Competitors and Their Market Share
• Export Markets
• Sales and Distribution System
• Projected Increase in Consumption
• Economic, Social and Demographic Trends
• Patent Protection

SCREENING
• Acceptability of Risk Level
• Technological Changes
• Competition from Substitutes
• Competition from Imports
• Governmental Control Over Price and Distribution

Project rating index
After considering all the above factors, the peak of the preliminary screening
may culminate constructing a Project rating index. This method comes in
handy when a firm evaluates a large number of project ideas regularly and
may be helpful to streamline the process of preliminary screening. The
steps involved in determining the project rating index are;
i) Identify factors relevant for project rating
ii) Assign weights to these factors (the weights are supposed to reflect their
relative importance).
iii) Rate the project proposal on various factors, using a suitable rating scale
(typically a 5-pint scale or a 7 point scale is used for this purpose)
iv) For each factor multiply the factor rating with the factor weight to get the
factor score
v) Add all the factor scores to get the overall project rating index

Module 2 Entrepreneurship Development

Environmental scanning
External analysis Internal analysis
Macro environment Micro environment
PESTEL analysis Five force analysis

Political Factors :-Political factors include government
regulations and legal issues and define both formal and
informal rules under which the firm must operate. Some
examples include:
 tax policy
 employment laws
 environmental regulations
 trade restrictions and tariffs
 political stability

Economic Factors :-Economic factors affect the
purchasing power of potential customers and the
firm's cost of capital. The following are examples of
factors in the macro economy:
 economic growth
 interest rates
 exchange rates
 inflation rate

Social Factors
Social factors include the demographic and cultural aspects of the
external macroenvironment. These factors affect customer needs and
the size of potential markets. Some social factors include:
 health consciousness
 population growth rate
 age distribution
 emphasis on safety
Technological Factors :-Technological factors can lower barriers to
entry, reduce minimum efficient production levels, and influence
outsourcing decisions. Some technological factors include:
 R&D activity
 Automation
 technology incentives
 rate of technological change

• Environmental Factors
• These factors have only really come to the forefront in the last fifteen years or
so. They have become important due to the increasing scarcity of raw
materials, pollution targets, doing business as an ethical and sustainable
company, carbon footprint targets set by governments (this is a good example
were one factor could be classes as political and environmental at the same
time). These are just some of the issues marketers are facing within this
factor. More and more consumers are demanding that the products they buy
are sourced ethically, and if possible from a sustainable source.
• Legal Factors
• Legal factors include - health and safety, equal opportunities, advertising
standards, consumer rights and laws, product labelling and product safety. It
is clear that companies need to know what is and what is not legal in order to
trade successfully. If an organization trades globally this becomes a very tricky
area to get right as each country has its own set of rules and regulations.

Porters five force analysis
• Threat Of New Entrants
• Threat Of Substitutes
• Bargaining Power Of Buyers
• Bargaining Power Of Suppliers
• Rivalry Among Existing Firms

Supplier Power
• This refers to the power the suppliers have to jack up their prices. This
will depend on a litany of factors like – how many suppliers are
present in the market, are the goods/services they supply unique and
special, is the quality comparable to other suppliers etc.
• The fewer the number of suppliers the more the concentration of
power in their hands. Another factor will be how difficult it would be
for the entrepreneur to shift to alternative suppliers and how much
would it cost him? The sum total of all these factors will give us an
idea of the supplier power in the industry.

2] Buyer Power
• This is an examination of how easily the buyers can bring down the
prices of the product and services available in the market.
• Again, this will depend on a lot of factors – the number of buyers, the
general order size, demand for new products, the uniqueness of your
product, prices of other alternatives etc. If the buyers are in limited
numbers they can dictate their terms and prices more efficiently.

3] Competitive Rivalry
• This is an important factor in Porter’s approach. The number of
competitors and their capability are both significant factors in an
industry.
• So if a new product on the market already has many competitors it is
a disadvantage. Because both suppliers and customers have
alternatives. But if your product or service has no, or very little
competition then that is a significant advantage to the entrepreneur.

4] Threat of Substitution
• This refers to the customer finding an alternative way to fulfil their
requirements. So they are able to eliminate the need for your product
or service because they found another way to satisfy their needs.
• Say for example your offer IT services of setting up a LAN connection.
But now the customers connect their entire computing system over a
wireless network, and so your services are no longer necessary.

5] Threat of New Entry
• This refers to how easy it is for new players to enter the market. If it is
fairly easy to enter the market with minimum finances and efforts,
then new players will keep entering and increasing the competition.
• This will weaken your position in the market and dilute your market
share. However, if there are some strong barriers to entry it will be
favourable to the entrepreneurs.

(a) Porter 5 forces Model–
It helps in analyzing profit potential of an
industry depending upon strength of –
i. Threat of new entrants
ii. Rivalry amongst existing companies
iii. Pressure from substitute products
iv.Bargaining power of buyer
v.Bargaining power of seller
TOOLS FOR IDENTIFYING Business
OPPORTUNITIES–

(b) Life cycle Approach → There are four stages a product goes through during his
life cycle:
(a)Pioneering Stage – In this stage the technology and
product is new, there is high competition and very few
entrants survive this stage.
(b)Rapid Growth Stage – This stage witnesses a significant
expansion in sales and profit.
(c)Maturity Stage – It marks developed industries with
mature product and steady growth rate.
(d)Decline Stage – Due to introduction of new products
and changes in customer preference the industry incurs a
decline in market share and profits.

(c) Experience Curve → Experience curve analyzes how cost per
unit changes with respect to accumulated volume of production.
• The Experience Curve concept was devised by the Boston Consulting
Group.
• From BCG's research into a major manufacturer of semiconductors, they
found that the unit cost of manufacturing fell by about 25% for each
doubling of the volume that it produced.
• BCG concluded: the more experience a firm has in producing a particular
product, the lower are its costs
• The logic behind the Experience Curve is this:
• As businesses grow, they gain experience...
• That experience may provide an advantage over the competition...
• The “experience effect” of lower unit costs is likely to be particularly strong
for large, successful businesses (market leaders)

• If the Experience Curve concept is valid, then it has some significant
implications for growth strategy:
• Business with the most experience should have a significant cost advantage
• Business with the highest market share likely to have the most / best
experience
• Therefore:
• Experience is a key barrier to entry
• Firms should try to maximise market share
• External growth (e.g. takeovers) might be the best way to do this if a
business can acquire firms with strong experience

Opportunity Analysis
• An opportunity is a favorable juncture of circumstances with a good
chance for success or progress. It is the job of the entrepreneur to locate
new ideas and to put them into action.
• Opportunity is a set of favorable circumstances associated with a business
idea that award it good chances of progress and future success
• Entrepreneurial opportunities are defined as situations in which new
products, services and processes can be introduced and sold at greater
than the cost of production
• Entrepreneurship can therefore be understood as the activity of
identifying and exploiting new business opportunities

Characteristics of an attractive opportunity
•  Timely
◦ - a current need, unmet demand or problem (e.g.
vaccine for bird flu, drugs to prevent obesity)
•  Solvable
◦ - a problem that can be solved in the near future with
accessible resources (e.g. a cure for cancerous
diseases, a more efficient public transport to reduce
congestion and traffic jams)

• Important
– The customer deems their problem or need important to them (e.g.
energy-saving air conditioner or petrol saving devices that work)
• Profitable
– the customer will pay for the solution and allow the enterprise to profit
(e.g. security products, multi function printers)
• Context
– a favorable regulatory and industry situation (e.g. on- line business
transaction , genuine investment schemes that promised high returns)

•  Opportunity analysis is the verification of the
proposed business that is viable before entrepreneur
spends their time and money into doing the business
plan.
•  It is to ensure that we are on the right track.
•  Can be shown in a diagram.

Opportunity
discovery
Evaluate the
opportunity
Go
Decision Technology-based
idea blueprint
Exploitation
of opportunity
Reject
Look
elsewhere

ASPECTS OF TECHNICAL ANALYSIS
1. Material inputs and utilities
2. Manufacturing process/technology
3. Product mix
4. Plant capacity
5. Location and site
6. Machineries and equipments
7. Structures and civil works
8. Project charts and layouts

1. MATERIAL INPUTS AND UTILITIES
It involves defining the requirements for materials and utilities, specifying their properties and
setting up a supply channel. Material input & utilities may be classified into the following:
Raw materials – Agricultural products, Mineral Products, Livestock & Forest Products, Marine
Products
Processed Industrial Materials/Components – Base metals, semi-processed materials,
manufactured parts, small component
Auxiliary materials and factory supplies – chemicals, additives, packaging material, paint, oil,
grease, cleaning materials
Utilities – power, water, steam, fuel
The following must be kept in mind while taking decisions regarding material, inputs and utilities:
• Physical properties of the material
• Transportation, Handling and Storage costs
• Quantity available from Domestic/Foreign sources
• Past and future trends in prices

2.MANUFACTURING PROCESS/TECHNOLOGY
Taking a decision on manufacturing process and technology to be used is one
of the most important decisions in technical analysis of a project. There are
various options and alternatives available for manufacturing a product or
service. It is the task of the project manager to select that process or
technology that is easy to acquire, appropriate for the project and feasible
with budget and technical requirements of the proposed project.
The choice of technology is influenced by the following considerations:
• Plant Capacity
• Material Inputs
• Production cost
• Product mix
• Technological Obsolescence
• Ease of absorption

3.PRODUCT MIX
• An important aspect in technical analysis of a project is product mix
decision. It is essential to choose an effective product mix as different
customers have different taste, preferences and needs. The choice of
product mix is usually guided by market requirements. A project
manager must keep in mind the quality of products and flexibility in
production while taking product mix decisions.

4. PLANT CAPACITY
It refers to the volume or no. of units that can be manufactured during
given time period. It is also known as production capacity. It is
computed keeping in mind the following factors:
• Installed capacity (machinery and equipment)
• Technical conditions of the plant
• Normal stoppages
• Holidays, shift patterns
• Downtime for maintenance etc.

5.LOCATION AND SITE
Location refers to a broad area within the city and while site means a
specific piece of land where project would be set-up. For the purpose
of site selection a critical assessment of the demand, size of plant and
input requirements is conducted which involves examining the
following factors:
• Proximity of Land to Markets
• Availability of raw materials
• Availability of Labour
• Existing Infrastructure i.e. roads, electricity, power, water supply
• Cost of land
• Government Policies

6.MACHINERIES AND EQUIPMENTS
• Machinery and Equipment requirement depends upon the
production technology and plant capacity of the proposed project.
• Things to be considered while selecting machinery and equipment:
• Availability of power to run machines
• Transporting heavy equipment
• Ease of use
• Import Policies of Government if the machines are to be imported from a
foreign country

7. STRUCTURES AND CIVIL WORKS
Technical analysis of a project for buildings, structures and civil works involves
preparation and development of site which includes:
• grading and leveling of land
• demolition of existing structures
• relocation of pipeline, cables, roads
• reclamation of sewers and drainage
• connections for utilities
• arranging for electricity, water etc.
Buildings & structures – It involves construction of
• factory buildings
• ancillary buildings
• administrative area
• residential quarters
• non factory buildings – cafe, medical center

8.PROJECT CHARTS AND LAYOUTS
• Once the project manager has sufficient data related to market size,
plant capacity, production technology, machinery and equipment,
buildings etc. he prepares charts and layouts for the proposed
project. Project charts and layouts help to:
• Define the scope of the project
• Provide basis for detailed project engineering
• Help in estimating investment and production cost

Licensing
• Definition: A business arrangement in which one company gives
another company permission to manufacture its product for a
specified payment
• Licensing lets you instantly tap the existing production, distribution
and marketing systems that other companies may have spent decades
building.
• In return, you get a percentage of the revenue from products or
services sold under your license. Licensing fees typically amount to a
small percentage of the sales price

• For example, about 90 percent of the $160 million a year in sales at
Calvin Klein Inc. comes from licensing the designer's name to makers
of underwear, jeans and perfume. The only merchandise the New
York-based company makes itself, in fact, are its women's apparel
lines.

• The downside of licensing is that you settle for a smaller piece of the
pie.
• On the other side of the coin, you could be the one with the interest
in licensing the high-recognition brand name of another company. To
many, it might seem like the key to a gold mine: Putting a Notre Dame
logo, a Lion King character or a Star Wars graphic on your product
means guaranteed success

Franchising
• Franchising is an arrangement where franchisor (one party) grants or
licenses some rights and authorities to franchisee (another party).
Franchising is a well-known marketing strategy for business
expansion.
• A contractual agreement takes place between Franchisor and
Franchisee. Franchisor authorizes franchisee to sell their products,
goods, services and give rights to use their trademark and brand
name. And these franchisee acts like a dealer.

• In return, the franchisee pays a one-time fee or commission to
franchisor and some share of revenue. Some advantages to
franchisees are they do not have to spend money on training
employees, they get to learn about business techniques.
• Examples of Franchising in India
• McDonald’s, Dominos, KFC, Pizza Hut, Subway, Dunkin’ Donuts, Taco Bell,
Baskin Robbins, Burger King

Functioning of Franchising
• Under a franchise, the two parties generally enter into a Franchise
Agreement. This agreement allows the franchise to use the
franchisor’s brand name and sell its products or services. In return,
the franchisee pays a fee to the franchisor.
• The franchisee may sell these products and services by operating as a
branch of the parent company. It may even use franchising rights by
selling these products under its own business venture.

• The franchisor may grant franchising rights to one or several
individuals or firms. Consequently, if just one person gets these rights,
he becomes the exclusive seller of the franchisor’s products in a
specific market or geographical limit.
• In return, the franchisor supplies its products, services, technological
know-how, brand name and trade secrets to the franchise. It even
provides training and assistance in some cases.

Advantages and Disadvantages of Franchising
• Advantages to Franchisors
• Firstly, franchising is a great way to expand a business without incurring additional
costs on expansion. This is because all expenses of selling are borne by the franchise.
• This further also helps in building a brand name, increasing goodwill and reaching
more customers.
• Advantages to Franchisees
• A franchise can use franchising to start a business on a pre-established brand name
of the franchisor. As a result, the franchise can predict his success and reduce risks of
failure.
• Furthermore, the franchise also does not need to spend money on training and
assistance because the franchisor provides this.
• Another advantage is that sometimes a franchisee may get exclusive rights to sell the
franchisor’s products within an area.
• Franchisees will get to know business techniques and trade secrets of brands.

• Disadvantages for Franchisors
• The most basic disadvantage is that the franchise does not possess direct control
over the sale of its products. As a result, its own goodwill can suffer if the franchisor
does not maintain quality standards.
• Furthermore, the franchisee may even leak the franchisor’s secrets to rivals.
Franchising also involves ongoing costs of providing maintenance, assistance, and
training on the franchisor.
• Disadvantages for Franchisees
• First of all, no franchise has complete control over his business. He always has to
adhere to policies and conditions of the franchisor.
• Another disadvantage is that he always has to pay some royalty to the franchisor on
a routine basis. In some cases, he may even have to share his profits with the
franchisor.

Strategic Alliance
• A strategic alliance in business is a relationship between two or more
businesses that enables each to achieve certain strategic objectives
neither would be able to achieve on their own.
• The strategic partners maintain their status as independent and
separate entities, share the benefits and control over the partnership,
and continue to make contributions to the alliance until it is
terminated.

Advantages of Strategic Alliances
• Strategic alliances usually are only formed if they provide an
advantage to all the parties in the alliance. These advantages can be
broken down to four broad categories.
• Organizational advantages
• You may wish to form a strategic alliance to learn necessary skills and obtain certain
capabilities from your strategic partner. Strategic partners may also help you enhance
your productive capacity, provide a distribution system, or extend your supply chain.
• Economic advantage
• You can reduce costs and risks by distributing them across the members of the alliance.
You can also obtain greater economies of scale in an alliance, as production volume can
increase, causing the cost per unit to decline. Finally, you and your partners can take
advantage of co-specialization, where you bundle your specializations together, creating
additional value, such as when a leading computer manufacturer bundles its desktop
with a leading monitor manufacturer's monitor.

• Strategic advantages
• You may join with your rivals to cooperate instead of compete. You can also
create alliances to create vertical integration where your partners are part of
your supply chain. Strategic alliances may also be useful to create a
competitive advantage by the pooling of resources and skills. This may also
help with future business opportunities and the development of new
products and technologies. Strategic alliances may also be used to get access
to new technologies or to pursue joint research and development.
• Political advantages
• Sometimes you need to form a strategic alliance with a local foreign business
to gain entry into a foreign market either because of local prejudices or legal
barriers to entry. Forming strategic alliances with politically-influential
partners may also help improve your own influence and position.

Disadvantages of Strategic Alliance
• Cultural and Language Barriers
• Uneven Alliances: When the decision powers are distributed very
uneven, the weaker alliance partner may be compelled to act in line
with the will of the more powerful partners even if it is actually not
willing to do so.
• Lack of Trust: In several alliances one partner will point the failure
finger at the other partnering company. Transferring the blame will
not solve the issue, but increases the stress between the alliance
partners and usually ruins the alliance.

• Damage to Goodwill: In case you create an alliance with another
organization, the other business’s poor public relations can harm your
organization’s reputation. Even if your alliance partner satisfies all of
its obligations to you and faithfully promotes your business, it might
still be linked to other acts of bad faith which may stain your
organization.
• Differences in Management Styles: Failing to understand and adjust to
“new style” of management is an obstacle to success in an alliance.
Adjustments are needed in management style to run successful
alliances.

• Loss of Autonomy: The business gets focused not only to a goal of its
own but that of the other business. This demands cost in terms of
goal displacement. The business at the same time loses the
independence and hence its ability to unilaterally handle the
outcomes. All the partners in an alliance have control over the
performance of the assigned tasks. No partner, hence, can unilaterally
control the result of an alliance activity.

Examples for strategic alliances
• Spotify and Uber
• Not every Spotify consumer uses Uber, nor does every Uber rider have a Spotify account.
The strategic alliance allows each company to pursue prospects from the other’s existing
customer base, all while continuing to promote both products.
• Bharti Airtel and Samsung
• To offer affordable 4G smartphone options to customers
• Mahindra & Mahindra and Ford Motor Company
• Cooperation in the sphere of products, technologies and distribution including future
mobility program, connected vehicle projects, electrification of cars amongst other
areas.

Contract Manufacturing
• Contract manufacturing is an outsourcing of certain production
activities that were previously performed by the manufacturer to a
third-party
• Manufacturers can save significant money on labor, materials and
other expenses related to production. Third-party contract
manufacturers are usually in developing countries with an abundant
supply of cheap labor and minimal regulations. So long as the
company maintains appropriate oversight, contract manufacturing
can permit a company to lower its production costs, maintain the
quality of its production, and increase its profit margins.

Examples for contract manufacturing
• Foxconn Technology Group served as the contract manufacturing firm
for several top electronics brands, managing contracts for the
production of products like the iPhone (Apple), Xbox One (Microsoft),
and Kindle Fire (Amazon).
• Nike manufactures products in Africa using contract manufacturing

Joint Venture
• A joint venture (JV) is a business arrangement in which two or more
parties agree to pool their resources for the purpose of accomplishing
a specific task. This task can be a new project or any other business
activity.
• Basics on joint ventures
• With a joint venture, businesses remain separate in legal terms
• Joint ventures are common, as firms want to benefit from collaborative
work in reaching a mutually agreed strategic target.
• Many joint ventures seek to share the fixed costs of major business research /
infrastructure projects

Examples for joint venture
• BMW and Toyota co-operate on research into hydrogen fuel cells,
vehicle electrification and ultra- lightweight materials
• Google and NASA developing Google Earth

Mergers and Acquisitions
• Mergers is the combination of two companies to form one,
while Acquisitions is one company taken over by the other.
• The reasoning behind M&A generally given is that two separate
companies together create more value compared to being on an
individual stand.
• When one company takes over another entity, and establishes itself
as the new owner, the purchase is called an acquisition. From a legal
point of view, the target company ceases to exist, the buyer absorbs
the business, and the buyer's stock continues to be traded, while the
target company’s stock ceases to trade.

• A merger describes two firms of approximately the same size, who
join forces to move forward as a single new entity, rather than remain
separately owned and operated. This action is known as a "merger of
equals.“
• Examples of M&A
• Google and Android
• Facebook and Instagram
• Facebook and whatsapp

Benefits of Mergers and Acquisitions
• Some of the benefits of M&A deals have to do with efficiencies and others
have to do with capabilities, such as:
• Improved economies of scale. By being able to purchase raw materials in greater
quantities, for example, costs can be reduced.
• Increased market share. Assuming the two companies are in the same industry,
bringing their resources together may result in larger market share.
• Increased distribution capabilities. By expanding geographically, companies may be
able to add to their distribution network or expand its geographic service area.
• Reduced labor costs. Eliminating staffing redundancies can help reduce costs.
• Improved labor talent. Expanding the labor pool from which the new, larger company
can draw can aid in growth and development.
• Enhanced financial resources. The financial wherewithal of two companies is
generally greater than one alone, making new investments possible.

Drawbacks of mergers and acquisitions
• Although mergers and acquisitions are expensive undertakings, there are
potential rewards. And there are disadvantages, or reasons not to purchase
an acquisition, including:
• Large expenses associated with buying a company, especially if it does not
want to be acquired. (If an investor has a controlling interest in another
company, however, it may not have a choice regarding whether it is
acquired.)
• Higher legal costs, which can be exorbitant if a company does not want to
be acquired.
• The opportunity cost of having to forego other deals in order to focus on
bringing two companies together.
• The possibility of a negative reaction to a merger or acquisition, which
drives the company’s stock price lower.

Intellectual Property
• Intellectual Property (IP) refers to creations of the mind: inventions,
literary and artistic works, and symbols, names, images, and designs
used in commerce.
• Intellectual property is divided into two categories:
• Industrial property, which includes inventions (patents), trademarks,
industrial designs, and geographic indications of source;
• Copyright, which includes literary and artistic works such as novels, poems
and plays, films, musical works, artistic works such as drawings, paintings,
photographs and sculptures, and architectural designs.

Copyrights
• Copyright is a form of intellectual property protection granted under
Indian law to the creators of original works of authorship such as
literary works (including computer programs, tables and compilations
including computer databases which may be expressed in words,
codes, schemes or in any other form, including a machine readable
medium), dramatic, musical and artistic works, cinematographic films
and sound recordings.
• For example, books, computer programs are protected under the Act as
literary works.

• Copyright rights can be exercised only by the owner of copyright or by
any other person who is duly licensed in this regard by the owner of
copyright.
• Copyrights include the right of adaptation, right of reproduction, right
of publication, right to make translations, communication to public
etc.

• Trademark is a symbol, word, or words legally registered or established by
use as representing a company or product
• Trademark means a different mark of authenticity, through which the
products of particular manufacturers or different commodities of particular
manufacturer, trader, or vendor may be distinguished from those of others.
• The objective of the Trade Marks Act, 1999 is to register trademarks
applied for in the country and to provide for better protection of trade
mark for goods and services and also to prevent fraudulent use of the
mark.

• Trade secret is a formula, process, device, or other business
information that is kept confidential to maintain an advantage over
competitors. It is an information-including a formula, pattern,
compilation, program, device, method, technique, or process that-
1. provides the owner of the information with a competitive advantage in the
market place.
2. is treated in a way that can reasonably be expected to prevent the public or
competitors from learning about it, except through improper acquisition or
theft.
• “Trade Secret is an effective tool to protect Intellectual Property
Rights of an entrepreneur.”

• According to Chambers 21st Century Dictionary, (Reprint on 2000,
page 1491) the term Trade Secret means – an ingredient, technique,
etc. that a particular company or individual will not divulge because
they see it as giving them an advantage over their rivals.
• Again, according to Oxford advanced learners Dictionary the term
Trade Secret means a piece of information about how a particular
product is made, that is only known to the company that makes it.
• Sometimes these trade secrets are also known as ”confidential
information.”

• Example: Most famous example of trade secret is
the coca-cola formula. This formula is kept locked
in a bank vault in Atlanta, can be opened only by
a resolution of the company’s board and is
known to only two employees at the same time.
The public has no access to the name of those
employees and they are not allowed to fly on the
same air plane.

• A patent is a form of intellectual property that gives its owner the
legal right to exclude others from making, using, selling and importing
an invention for a limited period of years, in exchange for publishing
an enabling public disclosure of the invention.
• Eg. Graham Bell – Telephone
• Thomas Alva Edison – 1093 patents

• Indian Patent Act, 1970 grants exclusive right to the inventor for his
invention for limited period of time. Generally 20 years time has been
granted to the patent holder but in case of inventions relating to
manufacturing of food or drugs or medicine it is for seven years from
the date of patent. There is certain legal procedure which needs to be
followed in order to register.
• In India patent registration can be filed individually or jointly. In case
of deceased inventor this can be done his legal representative on
behalf of him. All the required documents need to be filed along with
the application form. Only after verification registration certificate is
provided to the applicant.

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